With interest rates at all-time lows, many people consider refinancing home loans as a way to save money on their monthly expenses, and this is a good option for many people. There are a few general guidelines to consider, when you are thinking about refinancing home loans and not everybody is a good candidate for the process. Of course, there are plenty of reasons that some people may not want to consider this option, based on individual case scenarios, but usually they lack market value, proper credit requirements or the interest rate difference is not sufficient to cover the closing costs involved with refinancing home loans to get a lower monthly cost. The time you plan to remain in your home is a factor, too.
There are other people that are perfectly suited to consider refinancing their mortgage. Now is the best time to consider refinancing home loans, if you aren't up-side down in your market value to loan value, your mortgage interest rate is 2% or higher than current interest rates and you plan to live in your home for five years or more. The exception might be those that are close to paying off their home because you have more options if you continue paying it off. Final payments go towards principal, with little interest charged.
Keep in mind that refinancing home loans means your home will need to appraise for enough to pay off your old mortgage and leave 20% equity. Most mortgage lenders are conservative right now and 80% loan-to-value mortgages are commonplace. It used to be that lenders were willing to refinance loans at 100% value, but those days are gone. The problem for most people is they may not have as much equity as they once had because of declining housing markets, so they are stuck paying higher interest rates because they are unable to refinance. The only thing to do is ride out the current market conditions and wait for the housing markets to recover and consider your options at that time.
Credit and income documentation requirements are stricter, when you are considering refinancing home loans. Those with the best credit records and credit scores are the only ones eligible for the most attractive interest rates on refinancing and income must be documented with two years of income tax returns and paycheck stubs, in the majority of cases. Because mortgage underwriting guidelines are being enforced on much stricter terms, there is very little chance of getting around these requirements. In addition, the home must appraise for the proper value, regardless of credit and income.
With that being said, there are still many people that are eligible for refinancing home loans and there are many people that meet the stricter credit and income documentation guidelines, as well. The thing to consider may be the closing costs associated with getting the loan. You will have to pay for the appraisal, title insurance and other charges associated with the mortgage refinancing and many places will charge origination points. You can find low cost refinancing options, if you look carefully, however. For those that want a quick way to lower monthly expenses, it is possible that refinancing home loans may be the best way to do it, if you meet the guidelines and keep these important factors in mind.